The trend, largely driven by a rise in large court verdicts, has seen liability claims in the US grow by 57% over the past decade, peaking at 7% in 2023.
First observed in the 1980s, social inflation refers to the increase in insured liability claims that outpaces traditional economic factors, such as wage growth or consumer price inflation. It stems from a range of legislative, litigation, and societal trends, including the growing inclination to settle claims in court.
This trend is especially prominent in the US, where tort law relies on precedent and juries often decide cases. The rise of third-party litigation funding (TPLF), which allows litigants and law firms to pursue cases with financial backing from investors, has further fuelled the issue by increasing access to trials. In 2023 alone, 27 court cases saw payouts exceed USD 100 million.
Swiss Re’s Global Chief Economist, Jérôme Jean Haegeli, said: “Unlike economic inflation, there’s no indication that social inflation will slow down. Litigation costs have become the primary driver of liability claims, with businesses worldwide seeing rising legal defence expenses. This has caused liability insurance premiums to soar, particularly in the US, where the burden falls on consumers. Our new Social Inflation Index quantifies these cost drivers, which extend beyond economic inflation.”
Rising claims costs are creating an increasingly challenging environment for businesses and insurers alike. Over the last five years, US commercial casualty insurance losses have grown at an average annual rate of 11%, reaching USD 143 billion in 2023—well above the total insured losses from global natural catastrophes, which stood at USD 108 billion. This ongoing growth in claims could potentially erode some of the profitability gains casualty insurers have achieved from higher interest rates within the next year or two.
Swiss Re’s Chief Underwriting Officer for P&C Re, Gianfranco Lot, highlighted the growing impact of aggressive litigation, which has hit the liability insurance market particularly hard. “US liability lines exposed to bodily injury claims have recorded cumulative underwriting losses of USD 43 billion over the past five years. Capacity for global businesses has shrunk, and rate hikes have not kept up with the pace of loss trends,” Lot commented.
While social inflation is most pronounced in the US, its effects are beginning to spill over into other common-law jurisdictions such as the UK, Australia, and Canada, where tort law is similarly based on precedent. In the UK, social inflation accounted for over 10% of liability claims in 2023, often linked to US court rulings. Australia and Canada have seen similar effects, with social inflation contributing around 7% to liability claims, driven by the rise of mass tort cases.
In contrast, countries with civil law systems, like France and Germany, have yet to experience the same impact from social inflation. Tort law in these regions is governed by codified civil laws, and cases are adjudicated by professional judges rather than juries, limiting the potential for large-scale compensation awards. However, the EU could face growing exposure to social inflation in the future, as changes to product liability and representative action directives may pave the way for mass tort claims across the continent.
